I Prefer Gang Bang

Ahem Ahem Ahem... According to wikipedia, a gang bang or gangbang is a situation in which one individual, either a woman or man, has sexual intercourse with multiple partners in turn.

These multiple partners share one thing in common - to derive sexual satisfaction on one target. Don't get me wrong. I am not beginning to write about sexual fantasies here. Much to the disappointment for some I believe.

Drawing reference to the essence of a gangbang, a group of close friends of mine have decided to jointly incorporate a fund with aim of deriving financial satisfaction on our target. And our target is none other than financial freedom.

I have talked about setting aside RM500 solely for investments in stock market. Now, together with them, we have managed to collectively agreed to build up a cash flow of RM4,000 per month for a ten years investment horizon. Hence, this blog now also serves as an update on investment decisions made by myself, as the fund manager for the fund and other news in the market that they would also like to know.

Trust is extremely important among ourselves to be able to pool in resources and achieve our aim together and sooner. Nevertheless, I have decided to put in writing our understanding in undertaking this fund of ours which we called it the Hengdai Equity Fund IV ("HDFIV"). Hengdai literally means "brothers" in Chinese language and we have decided to just to stick with "brothers" although there are girls within the group. It's the relationship that counts. A relationship with trust and similar aim in life. Roman IV is basically number 4 and again in Chinese, 4 means "die". Probably Lilian Too, the famous fengshui consultant in Malaysia will ban the usage of 4 in such important fund of ours. However, we decided to take the risk as we would like to remind ourselves that we will "die" financially if we don't start investing.

Our agreement reads:

This fund agreement dated 26 February 2008 sets out the agreement between the persons listed in Section 3 to collectively contribute an agreed sum for investment in accordance with the parameters of the Fund listed in Section 3.

This agreement is not a legal agreement nor it is an invitation or offer for sale to public. The purpose of the agreement is to capture the understanding between the persons listed in Section 3.

This agreement also does not meant to be exhaustive in terms of terms and conditions. The information set out in Section 1 and 2 may be added/altered provided ALL the shareholders agree to the amendment for fairness purpose.

Section 1 Fund Information

Name	:	Hengdai Equity Fund IV
Category	:	Equity
Launch Date	:	15 February 2008
Closing Date	:	25 February 2008
Commencement Date	:	1 March 2008
Investor’s Risk Profile	:	Aggressive
Fund Objective	:	For aggressive investors who can stomach volatility in the value of the fund in the short run for long term capital appreciation. Seek capital growth over long-term period through investments in growth stocks.
Investment Strategy	:	Focuses on diversified portfolio of companies with good growth prospects that are listed on Bursa Malaysia Securities Berhad. May invest in foreign markets if outlook is good. With no pressure on reporting dates, the fund can sit idle on cash or fixed income securities to wait for downturn in stock market. Do not need to actively trade stocks to take profit or cut losses.

Section 2 Investment Information

Initial amount	:	Nil
Minimum amount	:	RM100
Frequency	:	Every month
Amount per frequency	:	Units of RM100
Management fee	:	Nil
Other fee	:	Relating to purchase of stocks.
Investment Horizon	:	10 years
Withdrawal option	:	Any point of time during the Investment Horizon.
Withdrawal value	:	Value of investment based on proportion of invested amount to the fund. Value will be calculated based on closing price of the fund on the day of receipt of request for withdrawal.
Dividends	:	No dividend will be declared as return made will be reinvested for growth purpose.
Fund manager	:	Seane and will decide on investments for the fund
Auditors	:	Cat and Nerd Nerd
Liquidator	:	Jiggy

Section 3 Shareholders

Monkey 500 (12.20%)
Alien 500 (12.20%)
Seane 500 (12.20%)
Piggy 400 (9.76%)
Old 400 (9.76%)
Valerie 300 (7.32%)
Pet Pet 200 (4.88%)
Nerd Nerd 200 (4.88%)
Vy Vy 200 (4.88%)
Nick 200 (4.88%)
Kit 200 (4.88%)
Fat Cat 200 (4.88%)
Jiggy 100 (2.44%)
Ghost 100 (2.44%)
Hoon 100 (2.44%)
Total 4,100 (100.00%)

Section 4 Procedures

For deposit

Timeline		Procedures
Last day of each month (commencing 29th February 2008)		Deadline for depositing of the investment amount. A late penalty of RM1 per day will be charged

For withdrawal

Timeline		Procedures
T day*		Submit request for withdrawal
T day		Calculation of market value of fund on the closing prices of stocks
T + 1 day		Commencement of sale of stocks
T + 4 days		Receipt of monies from broking house
T + 7 days		Clearance of cheques receipt from broking house
T + 8 days		Commencement of transfer of monies from Hengdai Equity Fund IV bank account to shareholder. Transfer may take more than 1 day as transfer amount is limited by the setting in the bank account. Cheque may be written to fasten the process.

* Day is referred to working day which excludes Saturday, Sunday and public holidays

Section 5 Responsibilities

(a) Liquidator

In catering for any unforeseen events whereby the Fund Manager is no longer able to invest for the fund or can't access the bank account and trading account, the Liquidator will step in and perform the following:

(a) Obtain the password to access the internet banking account from the Auditors.

(b) Call the stockbroker and order for sale of all stocks as soon as possible without delaying unless ALL shareholders agree to extend and hold on to the stocks.

(c) Bank in cheques received from the sale of stocks into the bank account.

(d) Transfer the cash obtained from sale of all assets to all shareholders in accordance to the proportion of shareholding listed in Section 3 (after confirmation with the Auditors)

(b) Auditors

(a) Obtain and safeguard the password of the internet bank account of the Fund Manager.

(b) Keep the contact details of the stockbroker.

(c) Perform random check on the internet bank account on the inflow and outflow of cash. Raise queries whenever appropriate.

(d) Audit the account statements prepared by the Fund Manager on a monthly basis.

(e) Confirm the liquidation value before Liquidator distribute cash upon liquidation.

(c) Responsibilities of Shareholders

(a) Bank in money according to Section 4.

(b) Monitor investment and performance of portfolio at your own discretion by logging on to http://seanelynch.blogspot.com/.

(c) ALL shareholders must agree to any additions, amendments or deletion of the terms in this agreement

(d) Fund Manager

(a) Invest in accordance with Fund Information for the interest of shareholders.

(b) Prepare account statements on a monthly basis for audit purpose.

(c) Update value of investments on a weekly basis.

(d) Clarify and communicate investment decisions to shareholders.

Section 7 Declaration

I, [name as per Section 3], understand and agreed to the above. I may have to bear any losses and of course enjoy the profits if I decide to withdraw early and during the investment horizon.

Nevertheless, I promise that I will not put any blame or cause any form of sufferings, either direct or indirect, to Fund Manager as I believe the Fund Manager has put the money where her mouth is and as a result will enjoy the profits and bear the losses together with me.

I also understand that the Fund Manager has given her undertaking to act in the best interest of the fund and will not in any event withdraw the fund for personal interest or commit fraud or whatsoever that deprived the financial benefits of the fund.

Yours sincerely

[name as per Section 3]

Let the gangbang begins....

How To Identify Areas of Investment With Return of 15%?

Valerie said...
Hi, am just an employee earning a small income in Malaysia. However, setting aside RM500 sounds okay. And after reading your article, I decided to start to plan ahead.However, you keep on saying to invest with an average return of 15%. My question is - how do we identify areas of investment which can generates such return? If you can name them, and are sure on the numbers, I would say everyone would set aside more than they could afford to shorten the time to reach the desired return. Your advise please, thanks.
February 17, 2008 5:28 AM

Seane Lynch said...
Valerie, great to hear that you realise the benefits of investment and decide to plan ahead. Starting early is equally important. To take a stab in answering your question on how to identify areas of investment with return of 15%, I would say that you have the following available options:

(a) Invest in mutual funds that are aggresive in nature. Aggresive in nature means that the bulk of the monies will be invested in stock market, be in local or overseas. Bulk could be as much as 80%. Be prepared to stomach volatility in the value of your investment though.

(b) Invest in stock market directly. If you would like to avoid fees and other charges that may be incurred when you invest in a mutual funds (which could be as high as 5-6% upfront), you may want to research on how to invest in the stock market directly. There are many school of thoughts on how to predict and time the market movement with the objective of buying low and selling high (chartist and technical analyst for example), those that calculate how much the stocks are worth and buy/sell when stocks are undervalued/overvalued (the fundamental based investors), and of course not forgetting the punters. Uncles and Aunties in both Singapore and Malaysia made up for a high proportion of punters in the stock market.

As you can probably gauge from the above options, stock market remains the best possible long term investment that can provide you a return of 15% or more, hopefully. Quoting lessons from Peter Lynch, don't try to time the market movement as market is extremely difficult to predict even for smart fund managers or analysts. Instead, view yourself as a business investor and focus on identifying companies that you understand well and have good business model. You are in actual fact owning a small piece of the company when you buy their shares. As long as the story line of the companies is good in terms of having the ability to derive good profits (from the business model), the stock price will rise in the long run.

It may sound difficult but it is interesting and satisfying if you are willing to invest some of your time in understanding the companies that you want to invest in. Again, have a long term horizon set in your mind and be patient as watched stock never boils.

You may have heard Uncle and Aunties buy stocks like nobody businesses but may deliberate for days or weeks or even months if they want to buy a TV or a refrigerator. They keep researching for better brands, look for warranty period and other features before placing their money. Invest at least as much time and effort in choosing companies to invest as you would in choosing a TV or a refrigerator.

p/s: Sorry Uncle and Aunties for using you guys as examples of punters. I can't think any better ones.

Too Long.....................???

First step to be taken is to determine the monthly allocation for building the first million worth of assets. I think generally RM500 per month is quite a comfortable amount that can be set aside by most who are employed. Hence I would choose to illustrate below how RM500 saved every month will grow under different rates of return within 30 years:

(a) Without any return on investment at all - Merely RM180k (or the principal amount)
(b) At 5% annual compounded rate of return - RM410k (2.3 times the principal amount)
(c) At 8% annual compounded rate of return - RM709k (3.9 times the principal amount)
(d) At 15% annual compounded rate of return - RM2.8 million (15.7 times principal amount)
(e) At 25% annual compounded rate of return - RM21.9 million (121.7 times principal amount)

The above numbers tell me that if I can grow my assets at 15% per annum on compounded basis, I will be able to reach RM1 million before 30 years. To be frank, I was totally demotivated when the numbers say that I can only probably achieve my aim of having RM1 million worth of assets between 20 to 30 years from now on if I start to save RM500. That is also provided that I can continue to achieve 15% annual compounded rate of return. It's too long a time horizon to look at.

Most of the people I talked to have the same thinking that saving RM500 per month (in which is quite a huge amount for those who are employed and not earning huge salaries) and only able to reach RM1 million dream in 20 - 30 years is a long time horizon. However, the funny thing is they know how difficult it is to achieve but they decide not to even do it!

Bottom line is let's not procrastinate and think how much we can allocate every month for long term investment purpose. Generally, financial consultants/planners advise to allocate from 15% up to 20% of gross income for investment purpose. I leave that to you on how much you want to allocate. I am gonna start off with RM500.

If you are not too well versed with calculation of returns based on amount of allocation other than RM500, let me know as I can assist in providing you the numbers.

(p/s: I have excluded other form of forced savings such as contributions to Central Provident Funds in Singapore or Employees Provident Funds in Malaysia in the above discussion. Of course these contributions will also help to achieve RM1 million sooner than the above timeline. Reason for exclusion is that you can't really do much with the rate of return of the funds. I prefer to concentrate on the monthly allocation and how you can maximise it's growth rate by investing in accordance to fundamental investment principles.)

Kicking Off

"Kick off" is the buzzword that investment bankers, lawyers, accountants, other relevant advisers and not forgetting the companies themselves, use to signify the beginning of most corporate exercises. During a "Kick off" meeting, investment bankers essentially tell their clients "Hey look. We are darn serious about billing you the fat fees that we are supposed to earn from this simple transaction in which you will see how we complicate it through our advices. So, let's get started with this boring meeting and our legal adviser will bring you through this stack of legal document where you will see how scary the penalties are, if you try to be funny by hiding information or doze off during subsequent meetings. We call it the due diligence planning memorandum."

Abit of a side track of how advisers and their clients kick start corporate exercises, at least formally. What I would like to say to "Kick off" my blog is simply that I will be sharing investment decisions that I will take on a long term basis to achieve my first million worth of assets. I believe there are many out there who aspire to build their first million too. No intention of being an expert or make investment recommendations here. Being a keen follower of Warren Buffett and Peter Lynch, I believe in fundamental investing. My objective is to apply these principles in making my first million. Various other principles and strategies will also be adopted and they are by no means ideas of mine but more of applying and testing them.

I do not have rich family background and earn my income through employment. Without going into debate on how to maximise income through other sources, I would like to concentrate on achieving the first million through constant allocation of monthly income for investment purposes. Although I may not be residing in Malaysia, I am particularly interested in the asset classes in Malaysia. Many friends warn that fundamental investing in Bursa Malaysia holds no water as it is a market full of speculators. Being a contrarian at heart, I choose to believe otherwise. Not for the sake of going against common beliefs but I do believe that Malaysia has alot of potential and the presence of speculators is seen as a good element in stock market as they will overvalue and undervalue stocks through greed and fear. That is when fundamental investor takes opportunity by buying undervalued stocks and of course, selling overvalued stocks. Another class of asset that I am particularly interested in is the property sector. Coupled with other available asset classes like gold, mutual funds and structured products alike, I will try to take a hit in achieving the first million, the D-I-Y style.

Lastly, before any naive readers make losses by using the information in this blog, I would like to ring fence my a**hole by quoting a disclaimer which read "The information and views expressed herin are the author's personal interpretations and thoughts and in no event should be taken as investment recommendations. The author will not be responsible for any losses incurred by adopting and/or using the information disclosed herein. Supportive comments are widely encouraged though if profits are made by adopting and/or using the information disclosed herein.